China further released new IIT preferential policies to benefit individuals investing in NEEQ-listed companies as well as Venture Capital Funds

Recently, the State Council has been paying close attention to the tax burden of individuals and has released preferential tax policies consecutively to improve the China IIT regime, On 30 November 2018, the Ministry of Finance(MOF), the State Administration of Taxation(SAT) and China Securities Regulation Commission(CSRC) jointly released the (Caishui[2018] No.137, hereinafter referred to as ""Circular 137""), clarifying the provisional IIT exemption treatment on income derived by individuals from the transfer of non-originally owned NEEQ-listed shares. Later on 12 December 2018, the State Council Executive Meeting decided to allow natural person partners of a qualifying venture capital (VC) fund in the form of a partnership to select to be taxed according to the 20% IIT rate applicable to the income category of "income derived from equity transfer" and "income derived from dividends and profit distribution". The release of these two policies demonstrates the central government's commitment in promoting the equitability of taxation, boosting the capital market and supporting entrepreneurships and innovations in China.

The release of Circular 137 and clarification on the IIT treatment of VC funds addresses several long-standing disputes. In this issue of China Tax and Business News Flash, we will summarise the IIT policies for NEEQ investors and natural person partners of VC funds, as well as share our observations.